Wednesday 12 December 2012

It doesn't have to be this way

The decision by Starbucks to pay some Corporation Tax over the next two years highlights a feature of the tax system which is widely used but not so widely known.  For large multi-national companies, Corporation Tax is essentially a voluntary tax.  They can decide how much to pay and where.

It isn’t new.  It’s something which large oil companies in particular have long been able to do.  If you own the whole supply chain from exploration through to retail, vesting different parts of it in different companies based in different countries but within the same group allows you to set transfer prices in a way which generates the ‘profits’ in the most favourable jurisdiction. 
What Starbucks and the others have been doing is simply a variation on that.  And the main thing that they’ve done differently is to be greedy – wiser companies have taken advantage of the rule in a more moderate fashion which leaves them paying something to everyone.
The recent stories have also highlighted another factor – the use of nameplate companies.  These are companies, set up in low tax jurisdictions, which don’t do anything very much other than act as a repository for profit, and a means of avoiding tax.  Ireland has been doing a bit of that of late; setting a low rate of company taxation has encouraged companies to set up nameplate companies in Ireland.  Ireland has gained, the companies have gained – it’s just the rest of us who’ve lost.
It underlines the danger of seeing company taxation as a competitive tool, and potentially gives ammunition to those keen to avoid devolution of Corporation Tax in the UK.  A race to the bottom might generate local benefits, but those benefits are not always based on real economic activity.  A race to the bottom helps no-one in the end.
What’s noticeably absent from the Starbucks statement is any commitment to change their accounting practices in the long term.  The PR that they’re getting from this gesture is good; but there’s no sign that they are really going to change.  They also haven’t given, a far as I’m aware, any commitment that they won’t simply use the tax paid ‘voluntarily’ over the next two years to offset any taxes which might become due in future years; something which they’re perfectly entitled to do.
Since none of the companies concerned have actually done anything illegal – indeed, they are under a legal obligation to maximise shareholder value – it’s unrealistic to expect any great change in behaviour unless the legal framework in which they operate is changed.  The government is showing little sign of any willingness to tackle that issue.  Again, that’s not really surprising – looked at as purely a tax collection issue, it’s hard to see what they could do effectively.
But what if we looked at the issue more widely?  Why does the law say that companies are obliged to maximise shareholder value (within the law, naturally) regardless of the interests of other stakeholders?  Setting the interests of capital above other interests might be a reflection of where we are; but there’s nothing inevitable about that.  We can order things differently if we wish.  It’s not a proposal I’d expect from the current government – but I’m not hearing it from any of the opposition parties either.  Why are they all so wedded to the rule of capital?


Spirit of BME said...

The Starbucks decision to hand over some money to HMRC is completely tonto.
Handing money to any government is dangerous, as they are inefficient on how they spend it and when they do, they spend it on dangerous toys like Polaris ,that is as much use as a chocolate tea pot.- (as the USA will decide if you can use it)
It is the patriotic duty of all Welsh people to deny H.M. Treasury as much money as possible.

Jim said...

Well, I rely on DLA to help me with my daughters disabilities.

Wirhout it, I am rendered unemployable...more tax.

Not all of it is spent on polaris.

If I didn't get help from government through taxes, I'd have to go and rob the likes of the previous poster or hold his loved ones to ransom.

Shouldn't complain, it would be easier to achieve the above than to fill out the DLA forms.

But I'm a nice guy, so I'll take back some of the enormous tax I've paid in my life to help my daughter.

And his children if he ever needs it.

But Starbucks....not only do they make a huge profit on what they sell us, they are not contributing to the roads that enabled their customers to get to their outlets, or contribute towards the education that their customers employed to seek employment in order to buy their product.

Nor to the education of their staff, nor to the police for protecting them whilst they rob us of their obligations to society.

I could go on.

Their token payment of £20M over 2 years is comparable to throwing a homless beggar a quid to get a coffee ( obviously not at starbucks).

How many idividual businesses have gone bust because of Starbucks marketing and non payment of tax?

If they can't pay their dues, then they should leave. The market is their for that product and they WILL be replaced by others that pay their dues.

A proud tax payer.